SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended March 31, 1998.
or
_____Transition Report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the transition period from__________________ to __________________.
Commission File No. 33-69326
CNB HOLDINGS, INC.
(Exact name of the registrant as specified in its charter)
Virginia 54-1663340
(State of Incorporation) (I.R.S. Employer Identification No.)
P.O. Box 1060, 900 Memorial Drive, Pulaski, Virginia 24301
(Address of principal executive offices)
(540) 994-0831
(Issuer's telephone number, including area code)
_________________________________________________________________
(Former name, former address, and former fiscal year, if changed since
last report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15 (d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date:
926,399 shares of common stock, $5.00 par value per share (the "Common
Stock"), issued and outstanding as of May 6, 1997
Transitional Small Business Disclosure Format (check one):Yes No X
Page 1 of 10. There are no Exhibits
CNB Holdings, Inc.
Form 10-QSB
INDEX
________________________________________________________________________________
PART 1. FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
The financial statements of CNB Holdings, Inc. (the "Company") are set forth
in the following pages.
Consolidated Balance Sheets as of March 31, 1998 and
December 31, 1997...........................................................3
Consolidated Statements of Operations for the Three Months
Ended March 31, 1998 and 1997...............................................4
Consolidated Statements of Stockholders' Equity for the
Three Months Ended March 31, 1998 and the Year
Ended December 31, 1997....................................................5
Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 1998 and 1997.....................................................6
Notes to Consolidated Financial Statements...................................7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.............................................8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings................................................. 9
Item 2. Changes in Securities............................................. 9
Item 3. Defaults Upon Senior Securities................................... 9
Item 4. Submission of Matters to a Vote of Security Holders............... 9
Item 5. Other Information................................................. 9
Item 6. Exhibits and Reports on Form 8-K.................................. 9
SIGNATURES..................................................................10
All schedules have been omitted because they are inapplicable or the
required information is provided in the financial statements, including the
notes thereto.
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Balance Sheets
March 31, 1998 and December 31, 1997
________________________________________________________________________________
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1998 1997
____________ ____________
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,679,392 $ 2,290,840
Federal funds sold 4,981,000 1,021,000
Investment securities available for sale 12,293,902 11,736,737
Loans, net of allowance for loan losses
of $282,000 in 1998 and $270,000 in 1997 23,639,380 22,395,227
Properties and equipment, net 1,861,628 1,853,855
Accrued income 255,329 241,318
Other assets 151,389 244,089
____________ ____________
Total assets $ 44,862,020 $ 39,783,066
____________ ____________
LIABILITIES
Demand deposits $ 3,306,032 $ 3,581,386
Interest-bearing demand deposits 10,762,268 11,192,361
Savings deposits 5,601,331 3,770,237
Large denomination time deposits 4,447,060 4,442,410
Other time deposits 14,405,552 13,607,494
___________ ___________
Total deposits 38,522,243 36,593,888
Accrued interest payable 68,983 55,448
Other liabilities 18,146 23,111
___________ ___________
Total liabilities 38,609,372 36,672,447
___________ ___________
Commitments and contingencies
STOCKHOLDERS'EQUITY:
Preferred stock, $1 par value; 1,000,000 shares
authorized; none outstanding - -
Common stock, $5 par value; 10,000,000 shares
authorized; 926,399 and 546,399 shares
outstanding in 1998 and 1997, respectively 4,631,995 2,731,995
Surplus 2,834,788 1,609,748
Retained deficit (1,201,793) (1,209,973)
Unrealized depreciation on investment
securities available for sale (12,342) (21,151)
___________ ___________
Total stockholders' equity 6,252,648 3,110,619 ___________
Total liabilities and stockholders'
equity $ 44,862,020 $ 39,783,066
____________ ____________
</TABLE>
See Notes to Consolidated Financial Statements 3
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Operations
For the three months ended March 31, 1998 and 1997 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
_____________
(Unaudited)
1998 1997
____ ____
<S> <C> <C>
INTEREST INCOME:
Loans and fees on loans $ 529,077 $ 308,087
Interest on securities available for sale 179,566 172,729
Federal funds sold 30,904 3,676
_________ _________
Total interest income 739,547 484,492
_________ _________
INTEREST EXPENSE:
Deposits 402,370 260,093
Federal funds purchased 130 2,627
_________ _________
Total interest expense 402,500 262,720
_________ _________
Net interest income 337,047 221,772
PROVISION FOR CREDIT LOSSES 20,019 18,613
_________ _________
Net interest income after provision
for credit losses 317,028 203,159
OTHER INCOME:
Rent income 3,397 -
Service charges on deposit accounts 38,199 20,623
Other income 14,698 9,902
_________ _________
Total other income 56,294 30,525
OTHER EXPENSE:
Salaries and employee benefits 167,156 138,816
Occupancy expense 26,992 16,345
Equipment expense 38,825 18,853
Other expense 132,169 111,261
_________ _________
Total other expense 365,142 285,275
_________ _________
Net income (loss) $ 8,180 $ (51,591)
_________ _________
NET LOSS PER SHARE $ (.01) $ (.12)
_________ _________
WEIGHTED AVERAGE SHARES OUTSTANDING 790,309 437,225
_________ _________
</TABLE>
See Notes to Consolidated Financial Statements 4
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
For the year ended December 31, 1997 and the three months ended March 31,1998
________________________________________________________________________________
<TABLE>
<CAPTION>
ACCUMULATED TOTAL
RETAINED OTHER STOCK-
COMMON STOCK EARNINGS COMPREHENSIVE HOLDERS
SHARES AMOUNT SURPLUS (DEFICIT) INCOME (LOSS) EQUITY
______ ______ _______ _________ _____________ ________
<S> <C> <C> <C> <C> <C> <C>
December 31,
1996 437,225 $2,186,125 $2,156,782 $ (962,723) $ (56,663) $3,323,521
Comprehensive
income
Net loss - - - (247,250) - (247,250)
Net change in depreciation
on investment securities
available for sale - - - - 35,512 35,512
_________
Total comprehensive
income 211,738
Stock dividend 109,306 546,530 (546,530) - - -
Reduction of
fractional
shares (132) (660) (504) - - (1,164)
_______ _________ _________ __________ ________ _________
December 31,
1997 546,399 $2,731,995 $1,609,748 $(1,209,973) $ (21,151) $3,110,619
Comprehensive
income
Net income - - - 8,180 - 8,180
Net change in depreciation
on investment securities
available for sale - - - - 8,809 8,809
_________
Total comprehensive
income 16,989
Common stock
sold 380,000 1,900,000 1,520,000 - - 3,420,000
Stock issuance
costs - - (294,960) - - (294,960)
_______ _________ _________ __________ ________ _________
BALANCE
MARCH 31,
1998 926,399 $4,631,995 $2,834,788 $(1,201,793) $ (12,342) $6,252,648
_______ _________ _________ _________ ________ _________
</TABLE>
See Notes to Consolidated Financial Statements 5
CNB HOLDINGS, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
For the three months ended March 31, 1998 and 1997 (Unaudited)
________________________________________________________________________________
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31,
(Unaudited)
1998 1997
____ ____
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 8,180 $ (51,591)
Adjustments to reconcile net loss
to net cash used by operations:
Depreciation and amortization 34,689 26,111
Provision for credit losses 20,019 18,613
Net realized gain on sale of securities - -
Accretion of discount on securities, net (1,060) (2,755)
Changes in assets and liabilities:
Accrued interest receivable (14,011) 6,617
Other assets (21,876) (23,937)
Accrued interest payable 13,535 8,747
Other liabilities (4,965) 8,576
___________ ___________
Net cash provided by operating activities 34,511 (9,619)
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease in federal funds sold (3,960,000) 402,000
Purchases of securities available for sale (4,489,584) -
Maturities of securities available for sale 3,942,288 269,588
Sales of securities available for sale - -
Net increase in loans (1,264,172) (1,603,906)
Purchases of properties and equipment (38,600) (39,470)
___________ ___________
Net cash used in investing activities (5,810,068) (971,788)
___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in demand, NOW,
and savings deposits 1,118,647 (791,815)
Net increase in time deposits 809,708 1,307,108
Sale of common stock 3,235,754 1,172,000
___________ __________
Net cash provided by financing activities 5,164,109 1,687,293
___________ __________
Net decrease in cash and cash equivalents (611,448) 705,886
CASH AND CASH EQUIVALENTS, BEGINNING 2,290,840 1,188,999
___________ ___________
CASH AND CASH EQUIVALENTS, ENDING $ 1,679,392 $ 1,894,885
___________ ___________
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid $ 388,965 $ 253,973
___________ ___________
Income taxes paid $ --- $ ---
___________ ___________
</TABLE>
See Notes to Consolidated Financial Statements 6
CNB HOLDINGS, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
________________________________________________________________________________
Note 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
CNB Holdings, Inc. (the Company) is a bank holding company incorporated
under the laws of Virginia on April 29, 1993. On August 29, 1994, the Company's
wholly owned subsidiary, Community National Bank (the Bank), was chartered as
an FDIC insured National Banking Association under the laws of the United States
and the Bank opened for business in Pulaski, Virginia. As an FDIC insured
National Banking Association, the Bank operates two banking offices and is
subject to regulation by the Comptroller of the Currency. The Company is
regulated by the Federal Reserve.
BASIS OF PRESENTATION:
The consolidated financial statements as of March 31, 1998 and for the
periods ended March 31, 1998 and 1997 included herein, have been prepared by
CNB holdings, Inc., without audit, pursuant to the rules and regulations of
the Securities and Exchange Commission. In the opinion of management, the
information furnished in the interim consolidated financial statements reflects
all adjustments necessary to present fairly the Company's consolidated fi-
nancial position, results of operations, changes in stockholders' equity and
cash flows for such interim periods. Management believes that all interim
period adjustments are of a normal recurring nature. These consolidated fi-
nancial statements should be read in conjunction with the Company's audited
financial statements and the notes thereto as of December 31, 1997, included
in the Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997.
The accounting and reporting policies of the Company and the Bank follow
generally accepted accounting principles and general practices within the
financial services industry.
NOTE 2. COMMITMENTS AND CONTINGENCIES
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
Standby letters of credit are conditional commitments issued by the Bank
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending other loan facilities to customers. Collateral held
varies as specified above and is required in instances which the Bank deems
necessary.
NOTE 3. SALE OF COMMON STOCK
After receiving approval in 1997 from the Securities and Exchange
Commission to sell an additional 380,000 shares of common stock, the
Company began offering this stock for sale in December, 1997. The entire
issue was fully subscribed by the offering cut-off date in February, 1998.
Net proceeds from this offering of approximately $3.2 million will be used
for general purposes and to fund future growth.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANACIAL CONDITION
AND RESULTS OF OPERATIONS.
The Company had a net income of $8,180 (or $.01 per share, based on
790,309 weighted average shares of Common Stock outstanding during the period)
for the three months ended March 31, 1998, compared with a loss of $51,591
(or $.12 per share, based on 437,225 weighted average shares of Common Stock
outstanding during the period) for the quarter ended March 31, 1997.
At March 31, 1998, the Company had total assets of approximately $44.9
million compared to $39.8 million at December 31, 1997. Total assets had a
positive increase of $5.1 million, or 12.8% since year end 1997. At March 31,
1998, assets were comprised principally of loans and investment securities.
Loans increased $1.2 million, or 6%, to $23.6 million at March 31, 1998, as
the Bank experienced loan growth in almost all categories. Investment
securities increased $4.5 million, or 35.4%, as proceeds from the stock sale
and increased deposit funds were received. As loan demand continues to
develop, the bank will be in a position to invest more of its excess funds
into higher yielding loans instead of investment securities.
The Company's liabilities at March 31, 1998 were $38.6 million compared
to $24.1 million at December 31, 1997. These liabilities consisted almost
entirely of deposits for both periods. Interest-bearing demand deposits
decreased by $430,000, or 3.8% to $10.8 million, and time deposits increased
$803,000, or 4.5%, to $18.9 million. At March 31, 1998, $3.3 million, or
8.6%, of total deposits were noninterest-bearing compared to $3.6 million,
or 9.8%, at December 31, 1997. The Bank offers competitive interest rates
in its local market and has been successful at attracting depositors.
At March 31, 1998 and December 31, 1997, the Company had stockholders'
equity of approximately $6.3 million and $3.1 million, respectively. Stock-
holders' equity was affected by the Company's first three months of 1998
net income of $8,180, stock sale proceeds of $3.2 million, and an $8,800
decrease in the unrealized depreciation on investment securities available
for sale. The Company believes the decrease is attributable to the uncertainty
in the current interest rate environment.
Management of the Company believes that the Bank has sufficient capital
to fund its operations until the Bank begins to gernerate profits on an
operating basis, but there can be no assurance that this will be the case.
The Bank has applied to become a member of the Federal Home Loan Bank system
which would provide the Bank with borrowing capacity to meet liquidity or
loan needs, however, management has not identified other sources of capital
for the Company or the Bank should they be needed.
At March 31, 1998, the Bank was in compliance with all regulatory capital
requirements. Management believes that the Bank has sufficient liquidity on
a short-term basis to meet any funding needs it may have, and expects that its
long term liquidity needs can be achieved through deposit growth, however
there can be no assurance that such growth will develop.
8
PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
There are no matters pending legal proceedings to which the Company or any of
its subsidiaries is a party or of which any of their property is subject.
Item 2. Changes in Securites
(a) Not applicable.
(b) Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on April 09, 1998, the
shareholders of the Company voted upon the following matters with the following
results:
(1) The election of the following persons as directors of the Company
to serve until the third annual meeting following their election
and therefore until their successors have been elected and have
qualified:
Name Votes for Votes witheld
_________________ _______ _____________
Sybil S. Atkinson 703,482 750
Randolph V. Christley 703,482 750
James L. Webb, Jr. 703,482 750
J. David Wine 703,482 750
Jack W. Bowling, Jackson M. Bruce, Wayne L. Carpenter, Hiawatha Nicely,Jr.,
A. Carole Pratt, David W. Ratcliff, Jr., and Nathaniel R. Tuck, continue to
service as directors after the Annual Meeting under terms which did not expire
at the Annual Meeting.
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Reports on 8-K
None.
9
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
CNB HOLDINGS, INC.
Date: May 14, 1998 By: s/Hiawatha Nicely, Jr.
__________________________________
Hiawatha Nicely, Jr.
President, Chief Executive Officer
and Principal Financial Officer
10
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CNB
HOLDINGS, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEET AT MARCH 31, 1998
AND THE CONSOLIDATED STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> $ 1,679,392
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,981,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 12,293,902
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 23,639,380
<ALLOWANCE> 282,000
<TOTAL-ASSETS> 44,862,020
<DEPOSITS> 38,522,243
<SHORT-TERM> 0
<LIABILITIES-OTHER> 87,109
<LONG-TERM> 0
0
0
<COMMON> 4,631,995
<OTHER-SE> 1,620,653
<TOTAL-LIABILITIES-AND-EQUITY> 44,862,020
<INTEREST-LOAN> 529,077
<INTEREST-INVEST> 179,566
<INTEREST-OTHER> 30,904
<INTEREST-TOTAL> 739,547
<INTEREST-DEPOSIT> 402,370
<INTEREST-EXPENSE> 402,500
<INTEREST-INCOME-NET> 337,047
<LOAN-LOSSES> 20,019
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 365,142
<INCOME-PRETAX> 8,180
<INCOME-PRE-EXTRAORDINARY> 8,180
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,180
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
<YIELD-ACTUAL> 3.57
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 270,000
<CHARGE-OFFS> 8,019
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 282,000
<ALLOWANCE-DOMESTIC> 282,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
